Foreign Bank Account Reporting Requirements

If you have a bank account or investment fund or some other type of account held outside the United States, you may need to disclose those foreign accounts to the US federal government. These foreign bank account reporting requirements are often unfamiliar to taxpayers.

We are used to the concept of reporting one’s income and deductions to calculate one’s taxes. But asset disclosures come as a surprise to many as they are not directly related to the tax calculations. However, this topic is especially important for Americans living or working abroad and for non-US citizens immigrating to the U.S., both of whom are likely to have financial assets outside of the country, and thus a requirement to file these disclosures as part of their tax return.

This article discusses:

What needs to be reported on the Form 114 (FBAR) and Form 8938?

What can be left off these reports?

Who needs to file Form 114?

Who needs to file Form 8938 with their tax return?

What are the penalties for not reporting?

What records need to be kept and for how long?

What Needs to be Reported?

We need to report accounts held at financial institutions located outside the United States of America.

On these reports, we include foreign financial accounts:

That you own

That your spouse owns (if you are married and filing jointly)

That you jointly own with someone else

That someone else owns if you have signature authority or a financial interest over the account

It’s not just bank accounts that have to be reported. We also need to disclose the existence of foreign brokerage accounts and mutual funds, retirement plans, life insurance policies with cash value, and annuities.

What Can be Left off These Reports?

Luckily, there are a few exceptions. None of the below have to be reported:

Accounts held at a foreign branch of a U.S. bank

Accounts held at a U.S. branch of a foreign bank

Pensions (in the traditional sense) – as these are not “accounts” owned by the client.

Foreign real estate

Foreign social security or similar program

Who Needs to File Form 114?

If a U.S. citizen or resident alien has more than $10,000 held at any time during the year in one or more foreign financial accounts, that person will need to file Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

If you file as a non-resident alien (under Form 1040NR), then you are not required to disclose these bank accounts. Consult this blog article if you are a non-US citizen and unsure whether to file as a resident or non-resident alien, or reach out to us at Visor for assistance.

Who Also Needs to File Form 8938?

Some people who file FBARs have the additional requirement of filing Form 8938, Statement of Specified Foreign Financial Assets.

Form 8938 applies to those with bank accounts with significant assets. The asset threshold varies based on whether 1) you are currently living inside or outside of the U.S. and 2) whether you file your tax return as married filing jointly, married filing separately, or single. The thresholds start at $50,000, so if you have an account that has about that much or more, then you might be subject to filing Form 8938.

Both of these factors are also not as simple as they seem. There is a precise definition that must be met to qualify as “living outside of the U.S.” Similarly, determining the account balance isn’t straightforward, as we have to look at both the highest balance reached at anytime during the year as well as the balance of the last day of the year.

Once we have those inputs, we then compare the account balances to the relevant thresholds to determine if this second disclosure requirement is necessary.

Penalties for Not Reporting Accounts on Form 114 or Form 8938

There is no tax associated with Form 114 or Form 8938. But there are significant penalties for failing to report foreign bank accounts.

Form 114 (FBAR) penalties start at $12,459 for a non-willful failure to file a complete and correct report. If a person’s actions were willful, the penalty can be up to 50% of the account balance or $100,000, whichever is higher. Penalties can be waived if the person can show reasonable cause for the delay or inaccuracy in filing the FBAR.

The penalty for not filing a Form 8938 by the deadline is $10,000. Additional penalties can be imposed if someone does not file a Form 8938 within 90 days of receiving a formal notice from the IRS warns that Form 8938 needs to be filed.

How Long to Keep Records

We urge clients to keep statements for each foreign financial account along with copies of the FBAR and Form 8938 for a period of at least six years from the date these reports were filed with the US government.

Takeaways

If someone has a total balance of USD $10,000 or more across all their foreign financial accounts, then they need to file Form 114 with the Financial Crimes Enforcement Network.

Account balance reporting thresholds for Form 8938 start at USD $50,000. This threshold varies based on the taxpayer’s filing status and location of residence.

No fine for over-reporting, but serious fines for under-reporting or omitting the forms altogether. Penalties for failing to file Form 114 start at $12,459. Penalties for failing to file Form 8938 start at $10,000.

8 Comments

Hello, just wondering if the flat rate is only for one year? I heard there is an amnesty program for expats & they only need to file the last 3 years of returns from the time they file. If so would it cost $799 x 3 years? & would that include the 6yrs of FBAR?

Hello, Erin. Thank you for reading our blog so carefully. Your question is excellent. The distinction between a “retirement account” and a “traditional pension” is who owns the financial account. The employer typically owns the pension account, with workers owning only an unsecured promise to pay future benefits, providing that they work with the employer long enough to become eligible for benefits. For reporting purposes in the United States, we need to disclose only financial assets owned by the individual (or accounts that are jointly owned, or accounts over which a person has signature authority).

Now I have not had an opportunity to take a close look at Danish pensions. Accordingly, I’m not in a position to provide a solid answer regarding the various pension schemes in Denmark. It does not matter whether the plan is called a pension. The crucial factor is who owns the funds. The Danish state pension, it seems to me, is more akin to a social security program, in that the retirement benefits are paid out of tax revenues and individuals do not own the underlying pension asset. Occupational pensions require a closer look: again the crucial question is who owns the underlying assets? Personal pensions are probably owned by the individual, so those likely will need to be reported to the US authorities.

Thanks William for your fast reply.
The cryptocurrencies I hold are on personal wallets, with no account number to identify them. Should I then just reference the amount I bought through the broker even if the currencies are not held there anymore? Thanks in advance.

Paul, we have an update to share with you. Just today, we saw the following reported in the Wall Street Journal, “According to a Treasury unit, investors aren’t currently required to report cryptocurrency holdings on FinCen Form 114, known as the Fbar,” (Laura Saunders, March 16, 2018). I called FinCen just now, just to see if I could confirm this. Unfortunately, I could not get through to a live person on their hotline.

Let me go back to your question. If you decide to report your cryptocurrency on your FBAR, then in your situation I would reference the dollar amount of crypto you bought through the broker. Because it sounds like you transferred the coin to your private wallet, so the initial dollar investment would have been the highest value of your “account” (for lack of a better word). So I’m in agreement with your thought process on this point.

That being said, this reporting from the Wall Street Journal is making us re-think whether crypto should be on the Foreign Bank Account Report. And here I have a strong preference in favor of reporting on the FBAR any crypto held through foreign brokers. My reasoning here is rather straightforward. Wallets held through foreign brokers look similar to accounts (in the traditional sense of the word). On top of that, there is no downside to reporting the crypto accounts. And finally, I have not been able to verify with FinCen whether crypto should be reported on the FBAR. Better safe than sorry.

Thanks for following up William!
I will follow your advice and report this broker account on the FBAR.
If you end up receiving a confirmation from the IRS, thanks in advance for updating us on the thread 🙂